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Overview


In 2017, The Financial Conduct Authority (UK) had announced to phase out the London Interbank Offered Rate (LIBOR) by the end of 2021. Regulators and benchmark administrators from various jurisdictions have since, taken appropriate steps to transition away from deeply embedded LIBOR. The current LIBOR will be replaced by Alternative Reference Rates (ARRs) recommended by regulators.

LIBOR Background


LIBOR is based on submissions provided by a panel of banks and is intended to reflect the interest rate at which banks can borrow money on unsecured terms in wholesale markets. It is also a benchmark interest rate for many derivatives, bonds, and loan products.

 

The benchmark is published in five currencies (US Dollar, Sterling, Euro, Swiss Franc, and Japanese Yen) over 7 different tenors each (overnight, 1 week, 1 month, 2 months, 3 months, 6 months, and 12 months).

 

In India, LIBOR is linked to derivative contracts, foreign currency term loans, foreign currency demand loans, trade finance loans, money market loans and other external commercial borrowings. Additionally, the Indian benchmark rate, Mumbai Interbank Forward Offer Rate (MIFOR) is derived from LIBOR.

 

LIBOR Cessation Timelines


On 5th of March 2021, the UK regulator had announced the cessation dates for different currency LIBORs across various tenors.


  • The last publication date for currency LIBORs such as Sterling, Euro, Swiss Franc, and Japanese Yen for all tenors will be the 31st of December 2021. Further, US Dollar LIBOR for 1 week and 2 months settings will cease after 31st December 2021.
  • The last publication/representativeness date of US Dollar LIBOR for other tenors will be 30th June 2023.

Parties with exposures to LIBOR linked loans and derivatives, global regulators and benchmark administrators have been working actively on this project for over a year. The major aspects of the project include:


  • Assessment of exposures to LIBOR linked contracts
  • Legal remediation of outstanding contracts
  • Understanding the workings of Alternate Reference Rates and associated products
  • Systems development
  • Information dissemination among internal and external stakeholders.

We acknowledge the associated challenges and are with our clients in their smooth transition away from LIBOR. The Bank has taken the following steps for creating awareness on this topic


  • Client communication highlighting key aspects of LIBOR Transition (in December 2020)
  • LIBOR Transition webinar was conducted for Axis Bank clients (in March 2021)
  • LIBOR Transition FAQs and Compendium providing detailed information on the transition (in May 2021)

For further reading, please refer to LIBOR Compendium and FAQs.


For any queries, please reach out to your Axis Bank Relationship manager or write to us at ibor_queries@axisbank.com.


LIBOR Fallback


Axis Bank is actively engaging with its clients in remediating outstanding contracts which reference LIBOR. Fallback clauses will be present in all new LIBOR linked contracts transacted before 31st December 2021. 


All outstanding term loan contracts (legacy contracts) which reference the non-USD LIBOR benchmarks shall be amended before 31st December 2021. Contracts which reference USD LIBOR are being amended. The remediation of USD LIBOR contracts shall continue during calendar year 2022. 


The Bank's LIBOR fallback options can be found here.


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